Opinion
No. 76-B-1524
October 4, 1978
Bankruptcy Court Jurisdiction — Subject Matter — Dispute Involving Third Parties
A bankruptcy court had no jurisdiction to resolve a dispute between a Chapter XII debtor's creditors and the creditors' attorneys where the dispute involved neither the debtor's assets nor property subject to the distribution scheme of the Bankruptcy Act.
The court was faced with a dispute over compensation said to be due from the main creditors of the debtor, and, the attorneys for those creditors. There was before the court a petition by the attorneys to enforce a charging lien on certain proceeds to which their clients will be entitled upon completion of outside financing from third parties in connection with the disposition of the property which is the subject of the Chapter XII case. Moreover, the attorneys asked the court to fix the reasonable value of their services to their clients. They also asked the court to disqualify new attorneys which the clients wished to retain.
The court noted that this was not a dispute concerning assets of the debtor. The debtor's estate would not be charged with compensation to these attorneys. The attorneys asked the court to reach out and block their clients from receiving what they will ultimately be entitled to in the overall settlement package affecting the property in which the debtor has a leasehold interest, until the creditors and attorneys resolve their own private dispute over fees.
It was plain, observed the court, that it had no jurisdiction to resolve disputes between third parties which have nothing to do with a debtor's assets. The bankruptcy court is bereft of jurisdiction to deal with disputes between third parties over property which is not party of the estate, nor subject to the distribution scheme of the Bankruptcy Act. It was true that the court, with the limited consent of the disputants, had undertook to assist the attorneys in receiving interim compensation from their now less than willing clients. However, the prior limited submission to the court to fix interim compensation did not confer subject matter jurisdiction. The limited involvement by the court should not be taken as an "implied ambush of the clients by this court to determine a private dispute between them and their attorneys". Thus, the court denied all three of the attorneys' requests. See Sec. 2a at ¶ 2041.